The Goodyear Tire & Rubber Company · NASDAQ:GT
The Goodyear Tire & Rubber — Q4 2017 Earnings Presentation
42 slides from The Goodyear Tire & Rubber's earnings presentation, Feb 8, 2018
Slide 1: Fourth Quarter 2017 Conference Call
Fourth Quarter 2017 Conference Call February 8, 2018
Slide 2: Forward-Looking Statements
Forward-Looking Statements Certain information contained in this presentation constitutes forward-looking statements for purposes of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. There are a variety of factors, many of which are beyond our control, that affect o
Slide 3: Full Year / Fourth Quarter Overview
Full Year / Fourth Quarter Overview • Global revenue per tire up 5% for the fourth quarter, up 4% for the full-year (a) • Exceeded full-year segment operating income (SOI) target of $1.5 billion (b) • Full-year cash flow from operating activities of $1.2 billion • Strong fourth quarter volume recove
Slide 4: Income Statement
Fourth Quarter 2017 Income Statement Terms: US$ millions Three Months Ended (except EPS) December 31, December 31, 2017 2016 Change Units 42.0 41.1 2% Net Sales $ 4,071 $ 3,741 9% Gross Margin 24.0% 27.2% (3.2) pts SAG $ 584 $ 600 (3)% (a) Segment Operating Income $ 419 $ 479 (13)% (a) Segment Opera
Slide 5: Segment Operating Results
Fourth Quarter 2017 Segment Operating Results Terms: US$ millions $479 $419 Q4 $19 ($33) 2016 Volume Unabsorbed Q4 SOI $57 ($37) Fixed Cost $13 2017 Cost Inflation(b) Currency SOI ($194) $115 Savings Raw Price/Mix Materials(a) ($14) Total Volume Impact ($79) Net P/M vs Raws $20 Net Cost Savings (a)
Slide 6: Balance Sheet
Fourth Quarter 2017 Balance Sheet Terms: US$ millions December 31, September 30, December 31, 2017 2017 2016 Cash and Cash equivalents $ 1,043 $ 822 $ 1,132 Accounts receivable 2,025 2,672 1,769 Inventories 2,787 2,991 2,627 Accounts payable - trade (2,807) (2,624) (2,589) (a) Working capital $ 2,00
Slide 7: Free Cash Flow
Fourth Quarter 2017 Free Cash Flow Terms: US$ millions Three Months Ended Trailing Twelve December 31, Months Ended 2017 2016(b) December 31, 2017 Net Income (Loss) $ (90) $ 567 $ 365 Depreciation and Amortization 195 191 781 Change in Working Capital 950 833 (106) Pension Expense 22 17 88 Pension C
Slide 8: Americas
Fourth Quarter 2017 - Segment Results Americas Terms: US$ millions Units in millions Fourth Quarter • Strong volume recovery 2017 2016 Change • U.S. consumer replacement up 8% Units 19.5 18.7 4.0% • Nearly double the market growth in ≥17” with all major channels Net Sales $2,184 $2,061 6.0% (retail,
Slide 9: Europe, Middle East & Africa
Fourth Quarter 2017 - Segment Results Europe, Middle East & Africa Terms: US$ millions Units in millions Fourth Quarter • Consumer replacement volume up 2017 2016 Change over 2% Units 13.7 14.1 (2.0%) • Outpaced the market in ≥17” for both winter and summer Net Sales $1,264 $1,132 11.7% segments • S
Slide 10: Asia Pacific
Fourth Quarter 2017 - Segment Results Asia Pacific Terms: US$ millions Units in millions Fourth Quarter • All-time record volume and SOI 2017 2016 Change • Volume driven by 10% volume Units 8.8 8.4 4.9% growth in China and Japan • China consumer OE up over Net Sales $623 $548 13.7% 15% driven by new
Slide 11: 2020 Segment Operating Income Target
2020 Segment Operating Income Target Drivers ✓ Profitable Growth • Right tires, right mix Targets ✓ Reduced Operating Cost $2.0 - $2.4B • 2020 SOI of $2.0 - $2.4B • Net Cost Savings • Balanced plan of growth and ✓ Reduced Structural Cost cost • Above-market growth $1.5B (a) in ≥17” • Reduced operati
Slide 12: Americas Outlook
Americas Outlook Consumer Replacement Select OE Fitments Industry leading brand in the U.S. • #1 OE share • #1 in unaided brand awareness 1 Total Industry • #1 in consideration • #1 in purchase intent • #1 interactive platform(a) 2 ≥17” Industry 3 2017 2020 4 2017 2020 Well positioned to capture rob
Slide 13: Europe, Middle East & Africa Outlook
Europe, Middle East & Africa Outlook Consumer Replacement Select OE Fitments Building Competitive Advantage • Winning product portfolio • More all-season test wins than Total Industry any other brand tested(a) 1 • Driving aligned distribution • Executing on cost/footprint 2 ≥17” Industry 3 2017 2020
Slide 14: Asia Pacific Outlook
Asia Pacific Outlook Consumer Replacement Select OE Fitments Foundation for Growth • Retail network expansion 1 Total Industry • Impactful new products • Capacity and capability investments • eCommerce partnership 2 ≥17” Industry 2017 2020 3 4 2017 2020 Proven growth engine capitalizing on tremendou
Slide 15: Technology is changing the world…
Technology is changing the world… Fleets Autonomous Connected Electric By 2030, 25% of $7 trillion business 3rd fastest growing 1st million sold in 6 global miles traveled by 2050(b) tech device after years, 2nd million will be shared(a) phones and tablets(c) sold in 2 years(d) …and creating new opp
Slide 16: Our Vision
Our Vision Positioned to be the leading supplier of tires and fleet services for AVs and EVs of tomorrow 16 16
Slide 17: 2018 Key Segment Operating Income Drivers
2018 Key Segment Operating Income Drivers (a) Current Outlook Driver Comments 2018 vs 2017 Global Volume ~3% Driven by ≥17”, ~flat in Q1 Net Price/Mix vs Raw Materials ~$25 million Raw materials flat, with ~$105 million net headwind in Q1 Positive impact from increased volume, Overhead Absorption ~$
Slide 18: 2018 Outlook – Other Financial Assumptions
2018 Outlook – Other Financial Assumptions Current 2018 FY Assumption Interest Expense $335 - $360 million Financing fees: ~$30 million Other (Income) Expense Global pension related (excluded from SOI): ~$90 million Expense: 20% - 25% of global pre-tax operating income; Income Tax Cash: ~15% of glob
Slide 19: Capacity expansion vs ≥17” demand through 2020
Capacity expansion vs ≥17” demand through 2020 (a) Units in millions EMEA Americas Asia Pacific 37 23 32 35 43 Capacity Demand 39 Capacity Demand Capacity Demand Favorable demand vs supply in ≥17” segment through 2020 (a) Capacity and demand based on Goodyear internal analysis. Capacity includes add
Slide 20: 2020 Segment Operating Income Walk
2020 Segment Operating Income Walk (a) Terms: US$ millions +$375 -$250 $2,000 - +$150 $2,400 +$385 Net Cost Investments 2020 $1,522(b) Price/Mix Savings SOI Volume vs Raw Target R&D, Advertising 2017 (Sales Margin Materials Net of and Overhead) inflation and D&A (impact SOI of increased capex) +11M
Slide 21: Capital Allocation Plan: Sources / Uses of Cash 2018-2020
Capital Allocation Plan Sources / Uses of Cash – Cumulative 2018-2020 Terms: US$ billions 2018 – 2020 SOI (a) ~$5.7 - $6.5 Less Corporate Other ~($0.5) EBIT ~$5.2 - $6.0 Add Depreciation ~$2.4 EBITDA ~$7.6 - $8.4 Maintaining the Business Driving Value •Interest Expense ~$1.1 Cash Available for Deplo
Slide 22: Capital Allocation Plan: Creating shareholder value
Capital Allocation Plan Sources / Uses of Cash – Cumulative 2018-2020 Terms: US$ billions Growth CapEx ~$0.7 - $0.9 Restructurings ~$0.4 Balance Sheet ~$0.4 - $0.6 Enhancements Dividends / Share ~$1.5 - $2.0(a) Repurchase ~$3.0 - $3.5 Creating shareholder value through capital allocation (a) Current
Slide 23: Segment Operating Income Target: Key drivers and risk factors
Segment Operating Income Target (a) Key drivers Risk Factors ✓ Moderate global industry growth, including: ✓ Economic environment • Above market growth in > 17” • Significant weakness in key markets • Emerging markets growth ✓ Raw materials ✓ Goodyear above market volume growth in > 17” units • Timi
Slide 24: Our Goal
OURSGOAL DELIVER SUSTAINABLEREVEN AND PROFIT GROWTH WHILE INCREASING THE VALUE OF OUR BRAND. HOW WE'LL WIN HOW WE'LL WORK INNOVATION SALES & MARKETING EXCELLENCE EXCELLENCE ft, OPERATIONAL EXCELLENCE ACTWITH INTEGRITY ENERGIZE THE TEAM PROMOTE COLLABORATION BE AGILE DELIVER RESULTS Winning at the in
Slide 25: Appendix
Appendix aviAgaooD
Slide 26: Industry Fundamentals: ≥17” Q4 Results
Industry Fundamentals: ≥17” Q4 Results U.S. Consumer Replacement Industry Europool & Turkey Replacement Industry 2017 vs 2016 Growth Rate (a) 2017 vs 2016 Growth Rate (b) Q4 Q4 USTMA Members (>17”) 9% ETRMA Members (>17”) 10% USTMA Members (<17”) -8% ETRMA Members (<17”) -2% Total 1% Total 1% Non-Me
Slide 27: Raw Materials
Raw Materials terms: US$ millions Raws Material Costs (a) $300 • We expect raw material cost to be +32% ~flat in 2018 vs 2017, if raw Full Year = ~ Flat $189 $194 material input costs remain at +21% +21% $105 current spot rate levels for the $42 +10% balance of 2018 $20 +4% -2% +2% • Recent upward p
Slide 28: Raw Materials
Raw Materials ✓ Raw materials are ~45% of tire COGS Global Raw Material Spend ✓ ~65% of raw materials are influenced by oil FY 2017 prices - P&L impact lags spot rates by 1-2 quarters depending on commodity ✓ ~60% of raw materials are purchased in USD ✓ Customer agreements indexed to raw materials -
Slide 29: Industry Mix
Industry Mix (a) • Trend towards larger, more complex rim sizes driven by OE over last several years – Benefit to replacement market as these fitments need first replacement tires • Average industry gross margin in >17” sizes is significantly more than in <17” sizes – $17 higher per tire in ≥17” seg
Slide 30: Goodyear Consumer ≥17” Sales Volume
Full Year 2017 Goodyear Consumer ≥17” Sales Volume (a) 2017 OE Replacement Total Americas 80% 40% 50% EMEA 45% 25% 30% Asia Pacific 30% 30% 30% Total Company 55% 35% 40% 5 points of growth in consumer replacement in 2017 (a) All percentages are approximate. 30
Slide 31: Tire Unit & Sales Summary
Full Year 2017 Tire Unit & Sales Summary Terms: millions 2017 Sales = $15,377 2017 2016 % Change Consumer Units 145.9 153.0 (4.6%) Consumer 60% Sales $9,285 $9,414 (1.4%) Commercial 19% Commercial Units 11.5 11.6 (0.6%) Other 10% Chemical Retail Sales $2,928 $2,806 4.3% 3% 8% 31
Slide 32: 2017 Segment Operating Income
2017 Segment Operating Income (a) Terms: US$ millions Q1 Q2 Q3 Q4 2017 Full Year Reported SOI $385 $361 $357 $419 $1,522 Pension Adjustment(b) $5 $8 $10 $11 $34 Adjusted SOI $390 $369 $367 $430 $1,556 (a) See Segment Operating Income and Margin reconciliation in Appendix on page 40 (b) Favorable rec
Slide 33: Fourth Quarter 2017 – Liquidity Profile
Fourth Quarter 2017 – Liquidity Profile Terms: US$ billions $4.2(a) Available $3.2 Credit Lines Cash & Equivalents $1.0 December 31, 2017 (a) Total liquidity comprised of $1,043 million of cash and cash equivalents, as well as $3,196 million of unused availability under various credit agreements. 33
Slide 34: Fourth Quarter 2017 – Maturity Schedule
Fourth Quarter 2017 – Maturity Schedule Terms: US$ millions Note: Based on December 31, 2017 balance sheet values and excludes notes payable, capital leases and other domestic and foreign debt. (a) At December 31, 2017 the amounts available and utilized under the Pan-European securitization program
Slide 35: Pension Update
Pension Update Terms: US$ millions Total Global Cash Flow Impact (a) (c) Global Unfunded Obligations (c) Global Pension Expense (b) (c) $135 $669 $656 $642 $650 $625 $100 -$125 $100 -$125 $100 -$125 $575 $103 $89 $90 $88 $71 $25 - $50 $25 - $50 $25 - $50 2015 2016 2017 2018E 2019E 2020E 2015 2016 20
Slide 36: 2018 Full-Year Industry Outlook
2018 Full-Year Industry Outlook Full-Year 2018 Guidance United States Western Europe (a) Consumer Replacement ~Flat - 2% ~Flat - 2% Consumer OE ~Flat ~Flat - 2% Commercial Replacement ~1 - 3% ~2 - 4% Commercial OE ~1 - 3% ~Flat - 2% (a) For replacement, Western Europe is Europool and Turkey. For OE,
Slide 37: Non-GAAP Financial Measures
Use of Historical and Forward-Looking Non-GAAP Financial Measures This presentation contains historical and forward-looking non-GAAP financial measures, including Total Segment Operating Income and Margin, Free Cash Flow, Adjusted Net Income and Adjusted Diluted Earnings Per Share (EPS), which are i
Slide 38: Fourth Quarter 2017 Significant Items
Fourth Quarter 2017 Significant Items (After Tax and Minority Interest) Terms: US$ millions, (except EPS) Rationalizations, Asset Write-offs, and As Discrete Tax Accelerated Pension Reported Items Depreciation Settlement As Adjusted Net Sales $ 4,071 $ - $ - $ - $ 4,071 Cost of Goods Sold 3,093 - (1
Slide 39: Fourth Quarter 2016 Significant Items
Fourth Quarter 2016 Significant Items (After Tax and Minority Interest) Terms: US$ millions, (except EPS) Insurance Rationalizations, Recovery - Asset Write-offs, Legal Claims As Discrete Tax Discontinued Net Gains on and Accelerated Unrelated to Pension Reported Items Products Asset Sales Depreciat
Slide 40: Reconciliation for Segment Operating Income/Margin
Reconciliation for Segment Operating Income/Margin Terms: US$ millions Three Months Ended Twelve Months Ended December 31, Sept 30, June 30, March 31, December 31, 2017 2016 2017 2017 2017 2017 Total Segment Operating Income $ 419 $ 479 $ 357 $ 361 $ 385 $ 1,522 Rationalizations (33) (16) (46) (27)
Slide 41: Reconciliation for Total Debt and Net Debt
Reconciliation for Total Debt and Net Debt Terms: US$ millions December 31, September 30, December 31, 2017 2017 2016 Long-Term Debt and Capital Leases $ 5,076 $ 5,737 $ 4,798 Notes Payable and Overdrafts 262 276 245 Long-Term Debt and Capital Leases Due Within One Year 391 378 436 Total Debt $ 5,72
Slide 42: Goodyear
GOODFYEAR
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